Treasury Minister Refuses To Divulge IR35 Revenues

by Jason Gorringe, Tax-News.com, London

20 July 2009

The Professional Contractors Group (PCG), the association that represents freelance workers and contractors in the UK, has criticized the government’s refusal to reveal statistics concerning IR35 legislation, in response to a recent parliamentary question on the matter.

Speaking in the House of Commons last month, Labour MP Terry Rooney asked then front bench Treasury minister Kitty Ussher how many investigations concerning IR35 were launched in each of the last five years, how many resulted in prosecution, and how many resulted in an increase in tax due.

However, Ussher refused to answer the question, arguing that to do so may compromise compliance with the controversial legislation.

Ussher was sacked by Prime Minister Gordon Brown two days later for allegedly ‘flipping’ her second home and avoiding capital gains tax, one of the many members of parliament across the parties who were caught up in the MPs' expenses scandal.

“The intermediaries legislation, commonly known as “IR35”, was introduced with effect from 6 April 2000 to counter the avoidance of employed levels of tax and national insurance by individuals providing their services through intermediaries,” Ussher responded in the Commons. “Disclosure of HM Revenue and Customs' compliance data relating to the legislation would result in a risk of non- compliance with the legislation. Accordingly I am not able to provide the data requested.”

The PCG believes that it is “unprecedented” for a Minister to refuse to answer a Parliamentary question because that answer would result in a risk of non-compliance with the legislation.

“PCG does not see it as being in the public interest that the effectiveness of tax legislation should be shrouded in a veil of secrecy,” the group stated.

According to the PCG, Ussher stonewalled the question because to answer it honestly would “expose IR35 to further ridicule.”

In May, the PCG revealed, based on a freedom of information request, that IR35 directly raised just GBP9.2m, or an average of just GBP1.5m per tax year between tax years 2002/03 and 2007/08 – way below the GBP220m the legislation was predicted to yield in National Insurance contributions alone in a 1999 government impact assessment. What is more, HMRC has spent considerable sums pursuing IR35 cases through the court. But the PCG claims that, of the 1,468 IR35 investigations it has been involved with, HMRC proved additional tax was owed just six times.

Introduced in 1999 as an anti-avoidance measure, IR35 seeks to deny that freelance contractors are genuinely in business and to tax them as employees without establishing a proper employment relationship.

"The Government has never previously stated that information on the financial details of IR35 would encourage people to ignore it - this is a new development,” commented PCG Board member, Gary Sharp. “No-one in PCG would ever suggest anyone breaks the law. However we know IR35 is ineffective, inefficient, costly to taxpayers and government alike. It is frequently misapplied and if you are paying, we could well surmise from this Parliamentary answer, that you could be in a minority."

PCG has placed a further freedom of information request with HMRC, asking the same question as Rooney.

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